Evans Randall has added a £32m liability from a highly unusual swap agreement to its £205m debt pile at 25 North Colonnade, E14.
The arrangement dates back to 2007 when Evans Randall entered a regular five-year interest rate swap on the loan, but unusually, also granted the hedge provider, Credit Suisse International, an “extension option”.
This unconditional option locked Evans Randall in to make a one-off £32.3m payment regardless of whether a further interest rate swap on the loan securing the 360,000 sq ft Canary Wharf building was agreed.
On Wednesday, Credit Suisse International demanded an immediate cash settlement of the “swaption termination payment”, after the swap – fixed at 4.981% – expired on Monday.
However, as the payment does not rank senior to the securitised loan, it will be paid at the same time as the loan principal and interest.
One source said: “This is quite unique. To call it an option is a misnomer. One can only assume there was a greater commercial logic behind the agreement, such as receiving a better margin on the swap.”
The swap ended at the same time as the senior loan, which was part of a major Credit Suisse CMBS transaction, matured and went into default. It will be transferred into special servicing with Hudson Advisers.
Talks are ongoing regarding its maturity, but a refinancing is expected to be more difficult to agree after the building’s main tenant, the Financial Conduct Authority, instructed CBRE to find it as much as 400,000 sq ft of office space ahead of a 2018 lease expiry.
Evans Randall bought the building for £197m in 2006 and completed a £205m refinancing 15 months later, returning a substantial profit to investors.
A spokesman for Evans Randall said several financing options were under discussion.
A number of other loans, totalling £120m, in the Titan Europe 2007-3 conduit also went into default yesterday, including a £59m loan secured against the Quadrant House office tower in Sutton, Surrey.
Bridget.O’Connell@estatesgazette.com
